Builder confidence in the market for newly built, single-family homes in May dropped two points to a level of 54 on the National Association of Home Builders/Wells Fargo Housing Market Index released today.

It, however, is a nine-point increase from the May 2014 reading of 45.

“Despite this month’s slight dip, builder confidence in the new home market remains above the 50-point benchmark,” said NAHB Chairman Tom Woods, a home builder from Blue Springs, Mo. “Overall, the second quarter of 2015 is shaping up to be very solid.”

Builder confidence in the market in April rose four points to a level of 56 on the index.

“Confidence among home builders unexpectedly declined in the second month of Q2 amid sluggish demand and lower expectations of a near-term surge in activity. Despite general optimism for most sectors of the economy, Fed officials have been quite critical of the housing market, continuing to characterize the recovery as downright ‘slow,’” said Sterne Agee chief economist Lindsey Piegza. “This morning's drop in the NAHB simply reinforces the Committee's lackluster assessment of the US housing recovery. 

“Coupled with last week’s laundry list of disappointing economic data – flat retail sales, further deflationary producer prices, declining manufacturing activity, and deteriorating consumer confidence – it is clear the US economy is struggling to move to firmer footing,” she said. “As far as a rate increase in June or September, are you kidding? At this point, one could argue the need for additional stimulus rather than a near-term removal of accommodative policy.”

The index’s components were mixed in May. The component charting sales expectations in the next six months rose one point to 64, the index measuring buyer traffic dropped a single point to 39, and the component gauging current sales conditions decreased two points to 59.

Looking at the three-month moving averages for regional HMI scores, the South and Midwest each rose one point to 57 and 55, respectively. The Northeast fell by one point to 41 and the West dropped three points to 55. 

“Consumers are exhibiting caution, and want to be on more stable financial footing before purchasing a home,” said NAHB Chief Economist David Crowe. “On the bright side, the HMI component measuring future sales expectations has been tracking upward all year, mortgage rates remain low, and house prices are affordable. These factors should spur the release of pent-up demand moving forward.”

Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

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